…requires more than just good programming.

Monthly Archives: September 2007

The Internet is a cornucopia of useful resources for software developers and marketers. As well as all the documentation, forums, blogs and wikis there are some great audio and video resources. Here are some of my favourites:

NerdTV – Robert Cringely interviews famous names from the software industry.

.Net rocks and Hanselminutes - Carl Franklin and Scott Hanselman interview people of interest to .Net/Windows developers. Some of the programs are Microsoft-heavy Silverlight/Orcas/WPF alphabetti spaghetti yawn-athons, but others are of more general interest.

TED talks – The great and the good talk on a wide range of subjects, including technology.

These sites contain hours of great material. Long drives/walks/waits need never be boring again. Please add a comment if I have missed any good ones.

Although developers have traditionally avoided anything to do with marketing (aka ‘the dark side’) both development and marketing require originality, creativity and hard work to do well. Don’t believe me? Lets say you have to market a top of the range blender – how would you do it?

As the survey is self-selecting it is hard to know how representative the results are for microISVs in general, but it makes interesting reading.

Of respondents whose microISVs had been running 6 months or more, 50% made less than $25 in sales per hour worked. Assuming modest expenses of 20% that means that the majority of microISVs are making less than $20 per hour worked, before tax. This sounds rather discouraging, but some claim to be making >$200 per hour. The author has kindly provided the raw stats for download, so I looked at them in a bit more detail. According to my quick analysis the situation is, unsurprisingly, more encouraging for established microISVs. If you take you all the respondents who have been in business at least 12 months, are working at least 30 hours per week and are making any sales at all, the average is around $60 in sales per hour worked. This is not too bad for an indoor job, with no heavy lifting, that you can do in your underwear.

The data also shows an interesting difference in sales by category. I took the data for all the 1-man companies with monthly sales >0, divided them by category and then removed the top and bottom performers in each category (to prevent outliers distorting the averages).

Average sales per hour worked ($), by category, click to enlarge

I am not surprised that the average sales is relatively low in the ‘Developer tools’ market given the fierce competition, prevalence of free tools and the effects of developer ‘not invented here’ syndrome. I am rather surprised that consumer software appears to pay better than business software. This seems to turn conventional wisdom on its head (assuming I got the numbers right, it was after midnight). Of course, sales is not the same as profit. There appears to be little (if any) correlation between the ticket price of an item and the total monthly sales.

Digging a bit further, the stats also show some correlation between marketing spend and sales:

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You’ve got this great idea for a software product. You are pretty confident that you can crank out version 1.0 working full-time on your own from the spare room, and you are fairly confident that people will buy it. But you’ve also got a well paid full-time job ‘working for the man’. It’s cosy and familiar in that cubicle. Is it worth risking your career and savings to set out into uncharted waters on your own? Do you take the red pill or the blue pill?

The aim of this article is just to give you some insight into the economic realities of becoming a one man software company (a microISV). The results might surprise you. ‘Working for the man’ you get a steady monthly income every month. Working for yourself you start off with no income, while you create your product. If all goes well you start to make sales when you release v1.0 and these sales gradually improve over time until you are earning the same amount each month as when you were working for the man . As the sales continue to improve you (hopefully) reach the point where you have made as much money as if you had stayed in your old job for the same period of time. From here on it’s all gravy. Here is a very simple model:

Monthly income as microISV vs WFTM (T0=version 1.0 release, T1=monthly income equal to WFTM, T2=areas under the red and blue lines are the same)

Obviously I am making a lot of assumptions and simplifications here. In particular I am assuming:

Net income from microISV sales rises linearly month-on-month as soon as you release v1.0. Obviously this can’t happen forever (or you will be richer than Bill Gates) but it seems as good a guess as any and it keeps the mathematics simple.

Even though the model is embarrassingly over-simplified, I think it can still give some insights. If I plug some numbers for T0 and T1 into a simple spreadsheet I can come up with values for T2. I’ll choose numbers that I consider optimistic, realistic and pessimistic for each. For T0 (time to V1.0) I choose 3, 6 and 12 months. For T1 (time to same income as WFTM) I choose 12, 18 and 24 months.

Months required to reach T2

i.e. if it takes you 6 months to get V1.0 out and then another 18 months until it is making the same monthly income (after expenses) as WFTM then it will take you 47 months to reach the point where a microISV has made you more money than WFTM.

So how much do you need in the way of savings to survive until you have a decent income? I can work this out by assuming living expenses as some proportion of WFTM monthly income. Calculating for 50% (living on noodles) and 100% (full speed ahead and damn the torpedoes):

Maximum debt in months of WFTM income with living expenses=50% of WFTM income

Maximum debt in months of WFTM income with living expenses=100% of WFTM income

i.e. if it takes you 6 months to get V1.0 out and then another 18 months until it is making the same monthly income (after expenses) as WFTM and your living expenses are 50% of your WFTM income then your maximum debt is 5 months of WFTM income.

I think the results of this simple little model make a few points:

Rate of sales growth is critical but the the time to getting v1.0 out is also very important. The longer it takes, the more you have to catch up later.

You are unlikely to come out financially ahead after 2 years as a microISV, even with fairly optimistic sales figures. It could easily take 3 or 4 years and, if the sales don’t take off or level out too early, you may never get there. There are many reasons to start a microISV, but getting rich quick isn’t one of them.

Given that you can’t know what T1 will be for your product, you should probably have at least 6 months WFTM income in the bank. Preferably 12 months.